Given how the National Development Council has been discussing problems with centrally sponsored schemes (CSS) for several decades now, it was about time the government did something about it and finance minister P Chidambaram did well to ensure that states will get 61% of all Plan funds in FY15, up from 25% in FY14. In the case of the rural development ministry, for instance, R71,000 crore of the total ministry’s budget of R78,502 crore will be routed directly through the state budgets as opposed to nothing earlier.

Though the move is a good one, to link it to greater federalism would be missing the point. Right now, the money is routed to independent implementing agencies which have state government nominees on their boards. The problem with this, however, is the lack of accountability it has fostered. The states don’t really treat the money as their responsibility while the Centre’s inability to monitor end-use is obvious from the poor results of most schemes. Routing the funds through state budgets is a good idea since, with the money now part of the state budgets, the states will be more accountable for its spending.

The problem, however, is that the schemes still continue to be designed by the central government, which gives little flexibility to states on how to spend the funds. Indeed, since each CSS has a matching contribution from the states, this often forces states into a position where they start a scheme and then, when the central scheme ends, they are stuck with all the people hired for the scheme. It was for this reason that the BK Chaturvedi committee had advocated that, subject to the broad goals of a scheme, states be given the freedom to use 20% of the funds as they deemed fit. While this has been partially accepted, in the long run, the schemes need to be made more flexible. The states, though, also need to uphold their end of the bargain. Transferring funds unilaterally to states meets the needs of federalism, but if states don’t use the funds to lift education levels, for instance in the case of SSA funds, the Centre can’t be blamed for wanting to impose restrictions on the use of SSA funds.